IPG Photonics Reports 9% Revenue Growth for Third Quarter 2016

OXFORD, Mass.--(BUSINESS WIRE)--

IPG Photonics Corporation IPGP today reported financial results for the third quarter ended September 30, 2016.

			Three Months Ended September 30,														Nine Months Ended September 30,
(In millions, except per share data)			2016					2015					% Change				2016					2015					% Change
Revenue			$	266.0				$	243.5				9	%			$	726.1				$	677.6				7	%
Gross margin			54.4		%			54.7		%							54.7		%			54.6		%
Operating income			$	94.1				$	89.6				5	%			$	259.1				$	259.0				—	%
Operating margin			35.4		%			36.8		%							35.7		%			38.2		%
Net income attributable to IPG Photonics Corporation			$	69.2				$	62.8				10	%			$	185.6				$	181.5				2	%
Earnings per diluted share			$	1.29				$	1.18				9	%			$	3.45				$	3.40				1	%

Management Comments

"IPG achieved another quarter of record sales for the third quarter of 2016," said Dr. Valentin Gapontsev, IPG Photonics' Chief Executive Officer. "Sales of $266 million were above the high end of our guidance range, reflecting a rebound in our core materials processing applications driven by increased demand in Asia, North America and certain parts of Europe. In addition to our record sales, we are also encouraged by robust bookings that remained strong throughout the quarter and were not impacted by the typical seasonality. As a result, our book-to-bill was above one for the third quarter."

Materials processing sales increased 10% year-over-year, primarily driven by demand for IPG's core cutting and welding applications, as well as strength in marking and engraving, laser sintering, hole drilling and cladding applications. High-power fiber laser sales had a record quarter with 17% growth year-over-year, while sales of medium-power, pulsed, QCW and laser systems decreased by single digits compared with the prior year. Sales to other markets were flat from the same quarter last year. Strong growth in telecom sales was offset by lower sales for medical and advanced applications. On a geographic basis, IPG reported strong growth in China, Japan and Korea despite foreign exchange headwinds, while sales in Europe and North America were up slightly from the third quarter of last year.

During the third quarter, IPG generated $87.7 million in cash from operations and used $30.8 million to finance capital expenditures. IPG ended the quarter with $772.5 million in cash and cash equivalents and short-term investments, representing an increase of $83.4 million from December 31, 2015.

Business Outlook and Financial Guidance

"We are seeing strong momentum in our business as we enter the final quarter of our fiscal year. We have significant opportunities to expand our business through both existing and new OEMs and end-users as we develop innovative products to address applications beyond our core markets. While the fourth quarter can be seasonally weaker, we believe we are well positioned for continued strong year-over-year sales and earnings growth and are confident in our short- and long-term opportunities," concluded Dr. Gapontsev.

IPG Photonics expects revenue in the range of $255 million to $270 million for the fourth quarter of 2016. The Company anticipates earnings per diluted share in the range of $1.17 to $1.32 based on 53,761,000 diluted common shares, which includes 53,071,000 basic common shares outstanding and 690,000 potentially dilutive options at September 30, 2016. As discussed in more detail in the "Safe Harbor" passage of this news release, actual results may differ from this guidance due to various factors including, but not limited to, product demand, order cancellations and delays, competition and general economic conditions. This guidance is based upon current market conditions and expectations, and is subject to the risks outlined in the Company's reports with the SEC, and assumes exchange rates relative to the U.S. Dollar of Euro 0.89, Russian Ruble 63, Japanese Yen 101 and Chinese Yuan 6.68, respectively.

Conference Call Reminder

The Company will hold a conference call today, October 27, 2016 at 10:00 a.m. ET. The conference call will be webcast live and can be accessed on the "Investors" section of the Company's website at www.ipgphotonics.com. The conference call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. An archived version of the webcast will be available for approximately one year on IPG's website.

About IPG Photonics Corporation

IPG Photonics Corporation is the world leader in high-power fiber lasers and amplifiers. Founded in 1990, IPG pioneered the development and commercialization of optical fiber-based lasers for use in diverse applications, primarily materials processing. Fiber lasers have revolutionized the industry by delivering superior performance, reliability and usability at a lower total cost of ownership compared with conventional lasers, allowing end users to increase productivity and decrease operating costs. IPG has its headquarters in Oxford, Massachusetts, and has additional plants and offices throughout the world. For more information, please visit www.ipgphotonics.com.

Safe Harbor Statement

Information and statements provided by IPG and its employees, including statements in this press release, that relate to future plans, events or performance are forward-looking statements. These statements involve risks and uncertainties. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to, strong momentum in IPG's business, significant opportunities to expand its business, development of innovative products to address applications beyond its core markets, continued strong year-over-year sales and earnings growth, and guidance for the fourth quarter of 2016. Factors that could cause actual results to differ materially include risks and uncertainties, including risks associated with the strength or weakness of the business conditions in industries and geographic markets that IPG serves, particularly the effect of downturns in the markets IPG serves; uncertainties and adverse changes in the general economic conditions of markets; IPG's ability to penetrate new applications for fiber lasers and increase market share; the rate of acceptance and penetration of IPG's products; inability to manage risks associated with international customers and operations; foreign currency fluctuations; high levels of fixed costs from IPG's vertical integration; the appropriateness of IPG's manufacturing capacity for the level of demand; competitive factors, including declining average selling prices; the effect of acquisitions and investments; inventory write-downs; intellectual property infringement claims and litigation; interruption in supply of key components; manufacturing risks; government regulations and trade sanctions; and other risks identified in IPG's SEC filings. Readers are encouraged to refer to the risk factors described in IPG's Annual Report on Form 10-K (filed with the SEC on February 26, 2016) and its periodic reports filed with the SEC, as applicable. Actual results, events and performance may differ materially. Readers are cautioned not to rely on the forward-looking statements, which speak only as of the date hereof. IPG undertakes no obligation to update the forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME
				Three Months Ended September 30,										Nine Months Ended September 30,
				2016					2015					2016					2015
				(in thousands, except per share data)
NET SALES				$	266,017				$	243,541				$	726,052				$	677,639
COST OF SALES				121,226					110,237					329,147					307,805
GROSS PROFIT				144,791					133,304					396,905					369,834
OPERATING EXPENSES:
Sales and marketing				10,460					7,717					28,183					23,228
Research and development				20,543					16,221					56,444					45,565
General and administrative				16,797					14,679					46,849					42,474
Loss (gain) on foreign exchange				2,905					5,125					6,316					(460		)
Total operating expenses				50,705					43,742					137,792					110,807
OPERATING INCOME				94,086					89,562					259,113					259,027
OTHER INCOME (EXPENSE), Net:
Interest income (expense), net				373					(40		)			835					(335		)
Other income, net				194					132					342					378
Total other income (expense)				567					92					1,177					43
INCOME BEFORE PROVISION FOR INCOME TAXES				94,653					89,654					260,290					259,070
PROVISION FOR INCOME TAXES				(25,426		)			(26,897		)			(74,703		)			(77,721		)
NET INCOME				69,227					62,757					185,587					181,349
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS				(8		)			(34		)			(33		)			(101		)
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION				$	69,235				$	62,791				$	185,620				$	181,450
NET INCOME ATTRIBUTABLE TO IPG PHOTONICS CORPORATION PER SHARE:
Basic				$	1.30				$	1.19				$	3.50				$	3.45
Diluted				$	1.29				$	1.18				$	3.45				$	3.40
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic				53,071					52,675					53,039					52,628
Diluted				53,761					53,392					53,752					53,390

IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF STOCK-BASED COMPENSATION
				Three Months Ended September 30,									Nine Months Ended September 30,
(In thousands)				2016				2015					2016				2015
Cost of sales				$	1,615			$	1,359				$	4,579			$	2,515
Sales and marketing				385				509					1,297				944
Research and development				1,268				993					3,581				1,863
General and administrative				2,395				1,874					6,642				3,540
Total stock-based compensation				5,663				4,735					16,099				8,862
Tax benefit recognized				(1,817		)		(1,565		)			(5,166		)		(2,908		)
Net stock-based compensation				$	3,846			$	3,170				$	10,933			$	5,954

IPG PHOTONICS CORPORATION SUPPLEMENTAL SCHEDULE OF ACQUISITION RELATED COSTS IN COST OF SALES
		Three Months Ended September 30,									Nine Months Ended September 30,
(In thousands)		2016				2015					2016				2015
Cost of sales
Step-up of inventory (1)		$	1,012			$	—				$	1,385			$	—
Amortization of intangible assets (2)		931				387					1,978				1,033
Total acquisition related costs		$	1,943			$	387				$	3,363			$	1,033

(1) Amount relates to Menara step-up adjustment on inventory sold during the period

(2) Amount relates to intangible amortization expense during periods presented including amortization of acquired patents

IPG PHOTONICS CORPORATION CONSOLIDATED BALANCE SHEETS
					September 30,				December 31,
					2016				2015
					(In thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents					$	645,558			$	582,532
Short-term investments					126,970				106,584
Accounts receivable, net					162,725				150,479
Inventories					242,370				203,738
Prepaid income taxes					35,342				33,692
Prepaid expenses and other current assets					38,913				25,564
Deferred income taxes, net					24,620				20,346
Total current assets					1,276,498				1,122,935
DEFERRED INCOME TAXES, NET					15,371				9,386
GOODWILL					20,142				505
INTANGIBLE ASSETS, NET					28,372				11,904
PROPERTY, PLANT AND EQUIPMENT, NET					367,474				288,604
OTHER ASSETS					19,441				20,095
TOTAL					$	1,727,298			$	1,453,429
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt					$	3,188			$	2,000
Accounts payable					17,899				26,314
Accrued expenses and other liabilities					96,376				75,667
Deferred income taxes, net					4,047				3,190
Income taxes payable					34,117				37,809
Total current liabilities					155,627				144,980
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES					30,223				30,117
LONG-TERM DEBT, NET OF CURRENT PORTION					38,432				17,667
Total liabilities					224,282				192,764
COMMITMENTS AND CONTINGENCIES
IPG PHOTONICS CORPORATION STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value, 175,000,000 shares authorized; 53,171,115 and 53,129,315 shares issued and outstanding, respectively, at September 30, 2016; 52,883,902 shares issued and outstanding at December 31, 2015					5				5
Treasury stock, at cost (41,800 and 0 shares held)					(3,483		)		—
Additional paid-in capital					635,778				607,649
Retained earnings					1,018,976				833,356
Accumulated other comprehensive loss					(148,430		)		(181,482		)
Total IPG Photonics Corporation stockholders' equity					1,502,846				1,259,528
NONCONTROLLING INTERESTS					170				1,137
Total equity					$	1,503,016			$	1,260,665
TOTAL					$	1,727,298			$	1,453,429

IPG PHOTONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
				Nine Months Ended September 30,
				2016				2015
				(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$	185,587			$	181,349
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				37,646				31,079
Provisions for inventory, warranty & bad debt				33,506				29,414
Other				10,282				3,029
Changes in assets and liabilities that used cash:
Accounts receivable/payable				(20,669		)		(15,485		)
Inventories				(42,814		)		(52,172		)
Other				(10,537		)		17,397
Net cash provided by operating activities				193,001				194,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment				(101,668		)		(50,759		)
Proceeds from sales of property, plant and equipment				1,841				231
Purchases of short-term investments				(179,374		)		—
Proceeds from short-term investments				158,808				—
Acquisition of businesses, net of cash acquired				(46,527		)		(4,958		)
Other				16				63
Net cash used in investing activities				(166,904		)		(55,423		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line-of-credit facilities				—				(2,274		)
Proceeds on long-term borrowings				23,750				—
Principal payments on long-term borrowings				(1,797		)		(12,833		)
Purchase of noncontrolling interests				(950		)		—
Exercise of employee stock options and issuances under employee stock purchase plan				9,186				10,489
Tax benefits from exercise of employee stock options				2,844				5,822
Purchase of Treasury Stock, at cost				(3,483		)		—
Net cash provided by financing activities				29,550				1,204
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS				7,379				(11,322		)
NET INCREASE IN CASH AND CASH EQUIVALENTS				63,026				129,070
CASH AND CASH EQUIVALENTS — Beginning of period				582,532				522,150
CASH AND CASH EQUIVALENTS — End of period				$	645,558			$	651,220
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest				$	623			$	688
Cash paid for income taxes				$	92,539			$	65,376

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